Five Companies that Fit the Formula

Here are 5 companies that fit the magic formula of high earnings yield and return on capital. Being undervalued, relative to earnings, good news has a greater effect than it would with a company that is already priced for perfection.

1. PNCL (Pinnacle Airlines)
   At $8.29/share and with over $2/share of earnings predicted for the year, this regional airline, a subsidiary of Northwest Airlines, has a chance for a good 'pop' when it announces earnings this Tuesday, November 7th.
   
   
2. ADDL (Aduddell Industries)
   At $1/share, this roofing and restoration company barely makes the $50 million market cap criteria. It reported a profit in the quarter ended June 30, as opposed to a loss last year, and on October 24, estimated $75 million in revenues for the year. It is planning growth through acquisitions in this fractious industry with no major players.
   
   
3. ASPV (Aspreva Pharmaceuticals)
   This pharmaceutical company works on marketing and developing new indications for existing drugs, and is currently partnered with Roche on CellCept, an anti-rejection drug for heart, kidney, and liver transplants. The stock has taken a hit with the announcement, last week, that CellCept failed in its Phase III trial for myasthenia gravis treatment. Other trials are ongoing, for research on the treatment of lupus and pemphigus vulgaris. The risk with this company is that they won't be able to partner with another company on any other drugs. CellCept will begin facing generic competition in 2009.
   
   
4. FCX (Freeport-McMoran) This mining company owns a mine in Indonesia, and that's basically it. It's a great mine (the largest gold reserve in the world, and the second-largest copper reserve), but the possibility of political turmoil in this country makes it a risky investment. It has a nice dividend yield of 2% to go along with the possibility of price appreciation.
   
   
5. OVTI (Omnivision)
   Omnivision makes semiconductor image sensors for use in cameras, and has recently introduced a chip designed especially for use in automobiles. It can be used for assisted parking, backing up, driver drowsiness detection, airbag deployment, drifting into another lane, and detection of pedestrians and other vehicles. These applications are expected to become more and more available in new cars in the future. There are also possibilities for OVTI in the medical field. The company has a lot of cash (around$3.44/share), no debt, and a history of innovation, but is in a competitive field. OVTI is heavily shorted, so there is the possibility of a short squeeze down the road.
   
   

Disclosure: I own stock in both Freeport-McMoran and Omnivision.